The Standard Chartered Renminbi Globalization Index passed the 2,000-mark, rising 1.25% to 2,016 in October from the previous month mainly driven by renminbi deposit growth as FX turnover and dim sum bond performances remained lacklustre. On a year-on-year comparison, the 64.5% growth rate is the slowest in 13 months.

 

Offshore renminbi deposits in the seven RGI centres stands at a cumulative 1.659 trillion yuan as of October. But the bank said there could be further headwinds to offshore renminbi accumulation in Hong Kong in the near term, particularly on the persistent CNH discount to CNY and likely strong northbound flows under the Shanghai-Hong Kong Stock Connect programme.

 

Although Taiwan’s renminbi deposit growth slowed in October, its rapid accumulation so far has surprised many in the market. Standard Chartered expects overall renminbi deposit in Taiwan is likely to rise further to 400 billion yuan in 2015, from 300.5 billion yuan end-October, driven by the relatively higher yields and strength of the CNY against the TWD.

 

More UCITS funds could receive approval in the weeks ahead, leading to steeper liquidity drain under the Stock Connect programme. On an aggregate basis, over 18% of the northbound quota has been utilized whilst less than 3% of the southbound quota has been used. As a result, there has been a net drain of over CNH40 billion from the offshore liquidity pool, representing about 5% of the total renminbi deposit pool in Hong Kong. Liquidity drain under the Stock Connect could reach close to 10% of total Hong Kong renminbi deposits in weeks.

 

Going forward, growth in the RGI is expected to remain slow but steady in the medium term. Offshore renminbi developments in Taiwan and Korea are likely to gather momentum further on increased deposit creation and favourable policy initiatives respectively. For instance, won-yuan direct trading was launched on 1 December. Standard Chartered expects this will help reduce overall exchange costs by 0.06-0.1ppt via KRW-CNH trading from the previous KRW-USD-CNH trading.

 

Standard Chartered launched the RGI in November 2012. The index covered seven markets in offshore RMB business: Hong Kong, London, Singapore, Taiwan, New York, Seoul and Paris. It measures business growth in four key areas: deposits (denoting store of wealth), dim sum bonds and certificate of deposits (as vehicles for capital raising), trade settlement and other international payments (unit of international commerce) and foreign exchange (unit of exchange).